Tencent had undergone many transformations since it was founded in 1998 as a simple messaging service. In 2017, it was the largest online games provider in China with a wide range of game types, China's largest social networking service provider with several of the largest social networking applications in the world, and China's favorite Internet portal. It was challenging Alibaba's Alipay as the leader in online payments systems, and it had established strategic relationships with many service providers to help exploit new opportunities in online-to-offline (O2O) services and leverage its huge user base in e-commerce and search. However, there was no room for complacency. Competition from the other big local Internet companies such as Baidu and Alibaba was fierce, and there were always thousands of start-ups looking to enter the sector. Founder and CEO Ma Huateng ("Pony" Ma) remarked, "In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share. In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China-execution is."
Swot Analysis of "Tencent" written by John R. Wells, Gabriel Ellsworth includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Tencent Ma facing as an external strategic factors. Some of the topics covered in Tencent case study are - Strategic Management Strategies, Competition, Cross-cultural management, Data, Emerging markets, Financial management, Government, Growth strategy, Internet, IT, Leading teams, Marketing, Mergers & acquisitions, Mobile, Networking, Organizational structure, Pricing, Product development, Reorganization, Risk management, Supply chain and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Tencent casestudy better are - – competitive advantages are harder to sustain because of technology dispersion, there is increasing trade war between United States & China, increasing commodity prices, there is backlash against globalization, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing government debt because of Covid-19 spendings, geopolitical disruptions,
challanges to central banks by blockchain based private currencies, increasing household debt because of falling income levels, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Tencent case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Tencent Ma, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Tencent Ma operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Tencent can be done for the following purposes –
1. Strategic planning using facts provided in Tencent case study
2. Improving business portfolio management of Tencent Ma
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Tencent Ma
Strengths Tencent | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Tencent Ma in Tencent Harvard Business Review case study are -
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Tencent Ma digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Tencent Ma has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
High switching costs
– The high switching costs that Tencent Ma has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Analytics focus
– Tencent Ma is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by John R. Wells, Gabriel Ellsworth can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Low bargaining power of suppliers
– Suppliers of Tencent Ma in the sector have low bargaining power. Tencent has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Tencent Ma to manage not only supply disruptions but also source products at highly competitive prices.
Highly skilled collaborators
– Tencent Ma has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Tencent HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
High brand equity
– Tencent Ma has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Tencent Ma to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to recruit top talent
– Tencent Ma is one of the leading recruiters in the industry. Managers in the Tencent are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Effective Research and Development (R&D)
– Tencent Ma has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Tencent - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Cross disciplinary teams
– Horizontal connected teams at the Tencent Ma are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Innovation driven organization
– Tencent Ma is one of the most innovative firm in sector. Manager in Tencent Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Ability to lead change in Strategy & Execution field
– Tencent Ma is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Tencent Ma in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Diverse revenue streams
– Tencent Ma is present in almost all the verticals within the industry. This has provided firm in Tencent case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Weaknesses Tencent | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Tencent are -
Workers concerns about automation
– As automation is fast increasing in the segment, Tencent Ma needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Aligning sales with marketing
– It come across in the case study Tencent that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Tencent can leverage the sales team experience to cultivate customer relationships as Tencent Ma is planning to shift buying processes online.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Tencent, in the dynamic environment Tencent Ma has struggled to respond to the nimble upstart competition. Tencent Ma has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Tencent Ma is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Tencent can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Low market penetration in new markets
– Outside its home market of Tencent Ma, firm in the HBR case study Tencent needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Increasing silos among functional specialists
– The organizational structure of Tencent Ma is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Tencent Ma needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Tencent Ma to focus more on services rather than just following the product oriented approach.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Tencent, it seems that the employees of Tencent Ma don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
No frontier risks strategy
– After analyzing the HBR case study Tencent, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Slow to strategic competitive environment developments
– As Tencent HBR case study mentions - Tencent Ma takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Tencent HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Tencent Ma has relatively successful track record of launching new products.
Lack of clear differentiation of Tencent Ma products
– To increase the profitability and margins on the products, Tencent Ma needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Tencent | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Tencent are -
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Tencent Ma can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Tencent Ma can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Tencent Ma is facing challenges because of the dominance of functional experts in the organization. Tencent case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Tencent Ma in the consumer business. Now Tencent Ma can target international markets with far fewer capital restrictions requirements than the existing system.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Tencent Ma in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Learning at scale
– Online learning technologies has now opened space for Tencent Ma to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Building a culture of innovation
– managers at Tencent Ma can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Tencent Ma can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Tencent, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Better consumer reach
– The expansion of the 5G network will help Tencent Ma to increase its market reach. Tencent Ma will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Tencent Ma to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Tencent Ma to hire the very best people irrespective of their geographical location.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Tencent Ma can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Low interest rates
– Even though inflation is raising its head in most developed economies, Tencent Ma can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Tencent Ma can use these opportunities to build new business models that can help the communities that Tencent Ma operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Using analytics as competitive advantage
– Tencent Ma has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Tencent - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Tencent Ma to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Tencent External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Tencent are -
High dependence on third party suppliers
– Tencent Ma high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Regulatory challenges
– Tencent Ma needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Tencent Ma needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Increasing wage structure of Tencent Ma
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Tencent Ma.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Tencent Ma can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Shortening product life cycle
– it is one of the major threat that Tencent Ma is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Technology acceleration in Forth Industrial Revolution
– Tencent Ma has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Tencent Ma needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Tencent Ma can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Tencent .
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Tencent Ma in the Strategy & Execution sector and impact the bottomline of the organization.
Consumer confidence and its impact on Tencent Ma demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Stagnating economy with rate increase
– Tencent Ma can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Tencent Ma.
Weighted SWOT Analysis of Tencent Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Tencent needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Tencent is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Tencent is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Tencent is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Tencent Ma needs to make to build a sustainable competitive advantage.